A new Messari report by Nick Garcia, called “State of Polkadot Q2 2022”, has explored the growth of Polkadot, the multichain network and open platform for safe Web 3.0 innovation, and the number of notable adoption milestones reached so far in 2022.
The current financial down trend largely due to macro-economic factors such as record inflation, interest rate hikes and recession fears has seen Polkadot’s native DOT asset crash in value from $27 on 1 January 2022 to around $7.50 currently (21 August). Despite this, Polkadot continues to grow and innovate, generating strong support from its community of developers and users as well as third-party partners in the process.
- Recently, billionaire Frank McCourt and his ethical technology initiative Project Liberty donated $100 million to build a decentralized social media blockchain with Polkadot that is capable of storing social media users’ data so they can own and control it.
- Polkadot creator Dr. Gavin Wood, who also co-founded Ethereum with the likes of Vitalik Buterin and Cardano founder Charles Hoskinson, has been vocal about his network’s ability to repair the system issues of social media, which includes a lack of censorship resistance and data privacy.
- In August 2022, Interlay, a decentralized stablecoin network, also launched the wrapped Bitcoin token, InterBTC (iBTC) on the Polkadot network to provide users the option to keep BTC in their Polkadot wallet.
What is Polkadot (DOT)?
Polkadot is a Nominated Proof-of-Stake (NPoS) blockchain network designed to support various parachains, which are interconnected, application-specific chains such as Moonbeam, Astar, Clover Finance and Acala.
Polkadot lowers barriers in order to make blockchain technology usable, scalable, interoperable, and future-proof. This encourages innovation, expands the decentralized technology market, and helps to realize its goal of building out mass Web 3.0 infrastructure.
All Polkadot parachains use Substrate, a blockchain development framework created by Parity Technologies that has a flexible design and enables blockchain developers to pick the components that best meets their chain and related applications.
Also important for Polkadot is Kusama, a scalable network of specialized blockchains built using Substrate with nearly the same codebase as Polkadot. Kusama is an experimental blockchain that is called Polkadot’s “canary network”, allowing developers to first test there extensively before deploying on Polkadot. Most parachains aim to operate on both Polkadot and Kusama, for example, the layer-1 projects Moonbeam and Moonriver.
Before we continue with the Polkadot Q2 report, let’s quickly recap why CoolWallet is a top Polkadot hardware wallet to keep and stake DOT and KSM in cold storage.
What is the Best Polkadot Hardware Wallet?
CoolWallet Pro is a top Polkadot hardware wallet that offers secure native DOT and KSM cold storage, as well as in-app staking rewards of up to 15% in DOT per year. This hardware wallet is best for Polkadot and Kusama wallet users, as it’s very convenient, safe and easy to use.
Safety: CoolWallet provides top DOT cold storage with enhanced security and peace of mind thanks to its powerful hardware security features, such as:
- EAL6+ secure element
- encrypted military-grade Bluetooth communication
- 2+1 FA biometric verification that requires a physical button push for all transactions.
- e-ink screen to visually confirm all DOT transaction details
Convenience: CoolWallet Pro looks like a credit card and is completely waterproof and tamper-proof thanks to its patented cold compression design, making it the perfect Polkadot hardware wallet to discreetly keep with you wherever you go.
Ease-of-Use: Polkadot users can stake their DOT via the intuitive CoolWallet app (iOS/Android) in only a few clicks and earn up to 15% APY in DOT rewards. You can also interact with leading DeFi and NFT projects like Uniswap, 1Inch, Rabby, OpenSea and Rarible, to name a few, and store many other top layer-1 cryptos like ETH, SOL, BNB, AVAX, TRX, ATOM and supported tokens.
Learn more with our Polkadot hardware wallet staking guide.
Messari Q2 Report: Polkadot’s June 2022 milestones
According to the Messari report, Polkadot achieved many Q2 milestones.
- Polkadot continues to scale and there are 36 active parachains on the experimental Kusama “canary” network and 21 on Polkadot itself.
- Over 550 projects are currently building on the network’s Substrate framework.
- 400 grant awards have been approved by the Web 3.0 Foundation‘s funding program, which supports Polkadot initiatives and helps fund tech startups in creating new blockchains. The Web 3.0 Foundation, founded by Dr. Wood in Zug, Switzerland.
- There are 1,400 active developers building on Polkadot each month, representing a year on year increase of over 75%, which is more than any other Web 3.0 protocol save Ethereum.
- Over 500 key contributors have worked on the Polkadot codebase between the Substrate and Polkadot repositories.
- Substrate-based blockchains, including Polkadot and Kusama parachains, have received a total of 621 forkless updates.
- Over 100 forkless Polkadot and Kusama automated upgrades and more than 1,400 engaged governance participants voting on recent referendums really demonstrate the networks’ resilience.
- Over 1.4 million DOT worth of spending proposals have been funded by the Polkadot Treasury, but only over 130,000 KSM worth of funds have been distributed by the Kusama Treasury.
In terms of its network, the following was achieved:
- 435,000 users used Polkadot in Q2 2022.
- A 3.5% increase in total DOT staked, from 53% to 56%.
- 293 million average DOT transfers per month, up from 288m in Q1 2022.
- 18.8% rise in the volume of treasury cash across the first 2 quarters
According to the Messari study, Polkadot continues to have some of the most robust developer activity. Messari found that Polkadot’s on-chain activity was consistent from Q1 to Q2 despite a harsh macro climate and that fundamental KPIs remained stable, with a healthy validator distribution by total stake, robust development activity, and the onboarding of seven additional parachains.
DOT Market Cap continues to decline
Unsurprisingly the DOT market cap suffered a heavy pullback in 2022, ending Q2 at $7.9 billion, over 66% ($15 billion) down from the end of Q1. Since its all-time high on 5 November 2021, Polkadot’s market cap has dropped by over 85% from $57 billion to less than $8 billion. Polkadot has previously shown its ability to make a comeback though, being valued at only $11 billion a year ago (July 2021).
Network usage stays stable
After usage peaked in the last quarter of 2021 due to the hyped launch of parachains and bull run climax, with an average of 566,000 users per month (321k active and 245k new), user accounts dropped sharply in 2022. However, so far in 2022, network usage remained consistent across Q1 (56k active and 92k new) and Q2 (77k active and 68k new), providing hope that Polkadot’s total number of users has stabilized.
DOT tokenomics cause supply inflation
Polkadot’s inflationary token model rewards validators for helping to secure the network, but also means the circulating DOT supply continues to increase and that there is no maximum token supply (currently at 1.2 billion DOT) theoretically. While DOT inflation is not fixed and tied to staking ratios, it averages around 10% per year, an important consideration to take before investing.
Polkadot praised for strong NPoS validator decentralization
Polkadot’s Nominated Proof-of-Stake (NPoS) consensus layer is different from Delegated Proof-of-Stake (DPoS), which is used by other chains such as Cardano and Tron, as nominators can also see their rewards slashed when their validator misbehaves.
It also actively encourages greater decentralization through the distribution of its rewards. DOT holders become nominators by staking their DOT with a validator. Polkadot’s NPoS design is such that validators earn nearly the same rewards and distribute these pro-rata to nominators. This encourages nominators to stake with less-supported validators in order to get more rewards, helping to spread DOT more equally across all validators. The mechanism is working, as 95% of the nearly 300 validators had between 1.8 to 2.6 million DOT staked.
Parachains grow to over 20, attracting less DOT and giving more rewards
Seven new parachain auctions concluded in Q2 2022, bringing the total Polkadot parachains to 20 and bonding 131 DOT (11% of total supply) for 2 years per parachain. Over half are DeFi chains, 6 are Web3 infrastructure protocols and 3 are smart contract platforms.
Due to the crypto market crash, it’s no surprise that far less DOT have been contributed to auctions, with the first 10 auctions attracting 16x more DOT than the last 10. It’s not all doom and gloom, as it means that recent parachain participants will receive more rewards for their DOT. Another 21 auctions are set to take place before February 2023.
Polkadot developer activity remains strong
One of the areas that Polkadot excels in is development, and it’s widely considered to have one of the strongest in all of crypto. After having the 2nd biggest crypto developer community last year, it maintained this performance in 2022 with on average 11,000 monthly developer activity events in 2022.
Other Polkadot developments
XCM Interoperability Standard
Polkadot’s cross-consensus messaging and data transfer standard, XCM, has progressed to the point where the network’s multiple parachains can simply and confidently interface with one another, building use cases and producing practical solutions.
Since its debut on May 4, this innovative interoperability technique has gained widespread use. Paracham teams have already established 111 channels for communication, exchanging about 10,000 messages a month. XCM frees parachains from operating in silos and allows them to build cross-chain primitives.
Launch of the Substrate Marketplace
Substrate’s website now features a new center for the Polkadot and Kusama “pallets” or modular building blocks that enable developers to quickly create their own custom blockchains.
Devs can now simply browse the 100 open-source pallets created by the community and made available under different open-source licenses at launch, in addition to those already included in Polkadot’s Substrate blockchain architecture.
Upcoming Governance Changes
In an effort to encourage quicker and more inclusive decision-making, Polkadot co-founder Dr. Gavin Wood has unveiled a revolutionary new governance structure that will see to the removal of elected groups like the Technical Committee and Polkadot Council and drastically increase communal decisions on Polkadot instead.
In Polkadot’s staking system, a clever active learning algorithm based on the first scientific study ever by the Polkadot Treasury now offers customized suggestions to nominators.
Despite tough economic conditions and increasing competition from other smart contract-powered networks like Cosmos (ATOM), Polkadot is continuing its slow-but-steady approach to building out its network and the community of developers and users around it unabated. As one of the crypto networks with the best developer and investor backing, and a reputation as the “original” Web3 chain fostering seamless interoperability between all its parachains, expect Polkadot to carry on with its mission to provide the world with a resilient decentralized Web3 infrastructure to transform all industries.
Written by Werner Vermaak
This article is not financial advice and for educational purposes only. All opinions represent that of the author alone.